Court Appoints Independent Arbitrator as Party Employee is Ineligible Under Amended Arbitration Act

In brief

The question

1. Whether an independent arbitrator should be appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996, despite the contract specifying an "Engineer Officer" as the sole arbitrator

The court held

Statutory amendments regarding arbitrator ineligibility supersede departmental appointment clauses

It also directed

The Court allowed the petition and appointed Shri Vinod Gupta, Chief Engineer (Retired), as the Sole Arbitrator. The Arbitrator was directed to proceed under the Arbitration and Conciliation Act, 1996, with fees to be shared by both parties

01Facts

The petitioner, a proprietorship involved in road construction, was awarded a contract (No. CE(P) BCN/01/2023-24) by the respondents on 12.04.2023 for bituminous works on the Patnitop-Nathatop road

p. 2 · ¶ 2-3

Work was suspended for 29 days due to inclement weather and the contract value was subsequently reduced from Rs. 2,44,10,600 to Rs. 1,50,00,000 due to non-availability of funds

p. 3 · ¶ 4, 7

After completion, the petitioner sought reimbursement for losses via communication dated 13.08.2024

p. 3 · ¶ 5

Following the respondents' failure to respond, the petitioner invoked the arbitration clause on 13.12.2024

p. 3 · ¶ 5

The respondents admitted the contract and its suspension but contended that under Condition 70 of the General Conditions of Contract, disputes must be referred to an Engineer Officer appointed by the authority

pp. 3-4 · ¶ 7-8

02Issues

i.1. Whether an independent arbitrator should be appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996, despite the contract specifying an "Engineer Officer" as the sole arbitrator

p. 5 · ¶ 9-10

03Law Applied

Section 11(6) of the Arbitration and Conciliation Act, 1996, regarding the court's power to appoint an arbitrator when the agreed procedure fails

p. 2 · ¶ 1

The 2015/2019 amendments to the Act, which establish that an employee of one of the parties is ineligible to act as an arbitrator, thereby overriding contractual clauses that permit the appointment of departmental officers

p. 5 · ¶ 9

Provisions in the judgment · 1 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 11

04Reasoning

The Court found that the existence of the arbitration agreement (Clause 70) and its valid invocation by the petitioner were undisputed

p. 5 · ¶ 9

While the contract's original terms required the appointment of an "Engineer Officer," the Court reasoned that post-amendment statutory law mandates neutrality in arbitration

p. 5 · ¶ 9

Since an employee of the respondents is legally ineligible to serve as an arbitrator, the designated departmental authority could not fulfill the role

p. 5 · ¶ 9

Consequently, as the respondents failed to appoint an eligible arbitrator following the petitioner’s notice, the Court exercised its jurisdiction to ensure the resolution of the dispute through an independent third party

p. 5 · ¶ 10